Minors As Shareholders In Cypriot Companies

According the Cypriot legislation there is no restriction for a minor to hold shares in a Company.

Cyprus Contract Law adopts the provisions of the UK’s Contract Act which states the following:

The law doesn’t prevent a minor – who is defined as a child under the age of 18 – from owning assets. The only exception here is owning land and buildings. However, the fact that a minor is allowed to own assets is complicated since a minor lacks legal capacity. Therefore any contract minors enter into (except for so called ‘necessary’ items’) is voidable by them while they’re still under 18. Contracts for necessary items are for things such as the supply of food, medicines accommodation and clothing.

The Contracts that provide the minors with legal or equitable interest in property with permanent character such as shares, marriage, land and partnerships are the ones whose effects a minor may avoid.

 In theory, a child could choose to give up his shares when the shares are nil paid or partly paid and the company makes a call.

Another problem for Companies which issue shares or allow transfers of shares to children is the concern of future investors regarding the participation of children in companies. Children may choose not to meet their obligations arising of their acquisition of shares in companies.

It is an undeniable fact that public companies often exclude minors from holding their shares. Also many other companies have relevant provisions regarding this matter in their articles of association indicating that shareholders’ age must be over 18.

Despite these restrictions, many companies allow the participation of children as shareholders.

Often, shares are allotted to children upon previous owner’s death. Also, in small family owned companies, shares are transferred from parents to their children as part of long-term inheritance tax planning. The law provides that any income from shares allotted from parents to their children will usually still be taxed on the parent.

The consequences from transferring and/or allotting shares to children are the following:

1. When someone transfer or allots his shares to a child, there is a great chance for the child in the future not to be willing to have any relation to the shares or even worse to block resolutions proposed by the transferring party. Therefore this will have as a result the transferring party to lose the control on those shares.

2. It is a fact that providers such as banks require the consent of all shareholders before entering into a contract. Since a child lacks capacity to contract, this will prevent the latter to sign. The lack of the child’s capacity may also make it difficult for the company the child is shareholder to, to access the banks or other service providers.

3. Minor shareholders due to the fact that they lack legal capacity, they may also not be appropriately constrained by the terms of any shareholders’ agreement that’s in place.

Also problems may arise if it is necessary the child to sale his shares before he reaches the age of majority. Many legal issues are involved regarding the sale and the parent of the child or a legal custodian need to apply for a court order in order to be able to proceed with the sale of children’s shares.

Signing on behalf of the child

The parents or a legal custodian of the child will sign all documents which should be signed by the child and relevant note should be place together with the signature.

 Alternatives to a child holding shares

- Shares might be held by suitable adults, for example parents or grandparents.
- A trust could be also set up for the benefit of the child. The shares are then held in the names of the trustees and regulated by the terms of the trust.

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